The People’s Bank of China (PBOC) has set the USD/CNY reference rate at 7.0173 for Tuesday’s trading. This is a small drop from the previous rate of 7.0230 and is higher than the Reuters estimate of 6.9730. The PBOC is a state-owned bank that focuses on keeping prices stable and supporting economic growth. Its management is significantly influenced by key figures in the Chinese Communist Party.

Monetary Policy Tools

The bank uses several monetary tools, such as the seven-day Reverse Repo Rate, the Medium-term Lending Facility, and the Reserve Requirement Ratio. The Loan Prime Rate (LPR) is China’s key interest rate, directly impacting loan market rates and the exchange rate of the Renminbi. Since 2014, China has allowed private banks, although they make up a small part of the financial system. The largest digital lenders include WeBank and MYbank, backed by Tencent and Ant Group. Various markets are showing changes, with commodities like gold and the yen reacting to shifts in the global economy. Currency pairs like EUR/USD and GBP/USD are fluctuating due to financial changes and geopolitical events. On January 6, 2026, the PBOC indicated a preference for a stronger yuan by lowering the USD/CNY reference rate to 7.0173. However, this move is more cautious than market expectations, reflecting the bank’s intention to manage the yuan’s appreciation and maintain stability as the economy strengthens. This action is supported by recent positive economic data. China’s official manufacturing PMI for December 2025 unexpectedly rose to 50.6, signaling the third month of growth and a stabilizing industrial sector. Additionally, China’s trade surplus grew by 3.2% in the last quarter of 2025, reinforcing the case for a stronger currency.

Market Context and Trading Strategies

The broader market context also plays a role, with the US Dollar Index (DXY) dropping over 2% since the Federal Reserve’s shift in policy in November 2025. This general weakness in the dollar is putting upward pressure on most major currencies, including the yuan. Today’s action by the PBOC seems to acknowledge these domestic and global influences. For derivative traders, this presents an opportunity to position for a slow, steady appreciation of the offshore yuan (CNH). Instead of taking on the risk of an outright short position in USD/CNH, traders might consider selling out-of-the-money call options on USD/CNH to generate premium from the expected range-bound decline. This strategy leverages the gradual downward trend and the low implied volatility characteristic of a managed currency. In 2021, a similar managed appreciation pattern occurred. At that time, the PBOC used its daily fixes to temper bullish sentiment on the yuan while still allowing it to strengthen gradually due to strong exports and capital inflows. The current situation resembles that strategy, suggesting that a slow and stable approach is more likely to be successful than betting on sudden, volatile movements. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now